India’s economy grew at 7.9% in January-March, the fastest in six quarters, cementing its position as the world’s fastest growing major economy, although a good monsoon and pick up in private investment will be critical to sustain the momentum.
The latest data comes a week before Prime Minister Narendra Modi’s visit to the US, where he is expected to hard sell India’s impressive growth record in the last two years in meetings with top CEOs.
India also outpaced China’s 6.7% growth in the same period as the rival Asian titan struggles to claw out of a crippling deceleration.
Turnaround signs were visible in another set of data released separately that showed growth in the infrastructure sectors surged to a four-year high of 8.5% in April.
Comprising eight industries — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — collectively called the ‘core sector’ as it makes up for nearly 38% of India’s total industrial production, this had shrunk by (-) 0.2% in April last year.
The country’s “real” or inflation-adjusted gross domestic product — a measure of the value of all goods and services produced — grew at 7.2% in October-December against 7.6% in the previous three months.
For the full year 2015-16, real GDP grew at 7.6%, the fastest in five years, aided by low commodity and oil prices.
Economic affairs secretary Shaktikanta Das said 8% growth was achievable in 2016-17. “The various measures the government has been taking in the last couple of years are beginning to show results and overall, there are green shoots… this year, hopefully with a good monsoon, we should look at growth closer to 8%,” Das said.
Analysts, however, said the overall economy’s expansion pace could be masking a persistent slowdown in exports and a still-fragile recovery in private investment.
“While headline GDP growth recorded an uptick, a key disappointment was the step down in investment growth,” said Aditi Nayar, senior economist, ICRA Limited, a credit rate and research firm.
According to the latest GDP data, gross fixed capital formation (GFCF) — a marker for new capacity additions by firms — grew at 3.9% in 2015-16 compared to 4.9% in 2014-15, mirroring subdued private and government investment activity.
“The contraction of GFCF by 1.9% in January-March is disappointing, highlighting the muted trend in private sector investments as well as some slowdown in the pace of growth of the government’s capital expenditure in the final quarter of the last fiscal,” Nayar said.
On the positive side, the farm sector appears to have rebounded after two successive droughts, growing 2.3% in January to March from a 1% contraction the previous quarter. Mining and electricity also showed a strong pick, rekindling hopes of a broader revival.
Creating jobs, however, remains a challenge with employment generation in eight sectors slowing to a seven-year low in 2015. Textiles, leather, metals, automobiles, gems and jewellery, transport, information technology and the handloom sectors together created 135,000 jobs in 2015, 67% lower than the 421,000 jobs added in 2014, the last year of UPA rule.